Exelixis to Investors: "Wait for It... No, Seriously, Wait for It!"

Small-cap biopharmaceutical company Exelixis sent a simple message to investors this past week: "Wait for it... No, seriously, wait for it."

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Exelixis' holding patternThe second-half of 2015 was supposed to bring a number of catalysts for Exelixis and its shareholders. One was the Food and Drug Administration's expected decision on approval of the combination of Exelixis' cobimetinib and Roche'sZelboraf as a treatment for BRAF V600 mutation-positive metastatic melanoma. The combination therapy garnered a priority review from the FDA, shortening the review process from the standard 10 months to six months and carrying a PDUFA date (i.e., an FDA decision date) of Aug. 11, 2015.

However, an update from Exelixis' development partner on Wednesday changed that. According to the press release,

Source: Roche.

Why investors are worried Long story short, investors are going to have to wait as long as three more months for a decision, and existing shareholders (myself included) clearly aren't thrilled about that.

Why? Because Exelixis has a very uncertain cash situation. Following Cometriq's failure to meet its primary endpoint (a statistically significant improvement in median overall survival) in the late-stage COMET-1 study as a treatment for metastatic castration-resistant prostate cancer, Exelixis let go of more than half of its staff and slashed its expenses. However, that hasn't stopped the cash outflow, since its lone approval for Cometriq (for medullary thyroid cancer) is only on pace to generate in the neighborhood of $40 million in sales this year. For context, Exelixis generated an operating cash outflow of $208 million over the trailing 12-month period.

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At the same time, Exelixis ended the first quarter with only $197.6 million in cash and cash equivalents. The good news is Exelixis' costs are down significantly from where they were a year ago due to the absence of the COMET trials -- but Exelixis' cash situation is still dicey at best.

Keep your chin up Exelixis shareholdersAlthough the PDUFA decision delay might be disappointing or even annoying considering Exelixis' cash situation, there are still plenty of reasons for shareholders to keep their chins up.

To begin with, there's an even bigger catalyst on the immediate horizon: the phase 3 METEOR readout.

Source: Exelixis.

The METEOR study is examining the efficacy of Cometriq in treating patients with advanced renal cell carcinoma compared to a control group given Afinitor. What's unique about METEOR compared to COMET-1 -- and why I'm personally excited -- is that METEOR's primary endpoint is a statistically significant improvement in progression-free survival instead of median overall survival. In METEOR, median overall survival is a secondary endpoint.

This is important, because Cometriq has shown a definite benefit in terms of PFS in each of its major studies thus far. In the medullary thyroid cancer trial that led to Cometriq's lone FDA approval it nearly tripled the PFS of the control group (11.2 months vs. four months), while in COMET-1 it practically doubled trial participants' PFS (5.5 months versus 2.8 months).

Furthermore, Exelixis announced a delay in METEOR events (e.g. death or disease progression) during its Q1 earnings report, possibly implying that better-than-expected PFS in the Cometriq arm is delaying its reaching the required events profile as laid out by the company and the FDA in its trial protocol. Of course, it could also mean the Afinitor arm is performing better in terms of PFS, but my personal hunch is that this delay is a positive for Cometriq in the METEOR study.

Second, the coBRIM data would appear to suggest that the combination of cobimetinib and Zelboraf has a better than 50-50 shot at approval.

Source: Roche.

In the results readout from coBRIM, which Exelixis presented at the European Society for Medical Oncology's annual meeting in September, the combination therapy produced a PFS of 9.9 months, compared to just 6.2 months for the Zelboraf monotherapy arm. An independent review committee witnessed an even greater PFS difference (11.3 months versus 6 months). Additionally, the combo therapy's objective response rate of 68% trounced the Zelboraf arm's 45%.

And at the American Society of Clinical Oncology's annual meeting at the end of May, Exelixis updated this data -- and it got even sweeter. Median PFS for the combo therapy rose to 12.3 months, compared to just 7.2 months for the Zelboraf monotherapy arm. The objective response rate also improved to 70% of trial participants, with the Zelboraf arm settling in at 50%. Finally, there was a noted uptick in complete responses in the combo therapy group relative to the monotherapy arm (16% versus 11%).

Finally, investors can likely expect a phase 1 readout from a combination study of cobimetinib and an anti-PD-L1 compound developed by Roche. Cancer immunotherapies are a hot area of research within biotech, and if cobimetinib can latch on with an anti-PD-L1 compound from an established partner it could result in substantial income potential.

Stay the courseMy suggestion is that both existing shareholders and investors on the outside looking in maintain their investing theses despite the FDA delay. There are still three major catalysts to come in the second half of 2015, and in my opinion the data suggests that Exelixis is on the right track. Of course, that'll be up to the market and investors to decide -- but in the meantime I have no desire to part ways with any of my shares.